You might think that the amount of information and sources available online regarding credit cards won’t let you fall into the pitfalls of credit card myths. Well! If you believe in such contexts too, then sorry to break the ice but you’re wrong and probably captivated by some credit card myths and facts.
A credit card, also known as plastic money is one of the best financial tool available to us. It’s easy to carry, can be used anywhere, provides funds in an emergency situation, and also increases credit score if used wisely. But like any other financial tool, these are too surrounded by certain myths, thus making people doubtful to use this imperative financial tool.
We are positive, that if armed with the right information you can too bust all myths that have been holding you back ever since. We’ve summed up some of the most common misconceptions related to credit card and their myth buster to help you in the process. Read on to have full exposure to credit card myths and facts and make yourself aware of the process.
This is one of the common misconception among the masses regarding the usage of credit cards. Most people avoid using a credit card, believing it would hurt their credit score. Well, time to bust this myth! Availing a credit card is the foremost step taken towards building a good credit score. If maintained and managed well, your credit score will see a jump, making it easier for you to avail loans in the near future easily.
If credit cards are used wisely then they can boost up one’s credit score. But if you’re defaulting on your payments and brushing aside the outstanding bills, then fall in your credit score becomes inevitable.
Instead of believing in such scare tactics or flawed information, consider doing your in-depth research and using your credit card responsibly. Keeping a credit card with you won’t magically lay oneself on to debt but it can increase one’s credit score without a doubt. If you’re worried about using the excess credit on your card, then here’s a tip- keep your credit utilization ratio between 20-30%.
The myth is conceived from the notion that every card would play a role in to increase your debts. Though, this might be true for the people with shoddy spending and financial habits. But people who know how to manage the card well would surely have an advantage by holding several cards. Every card has different offers, discounts and reward points on its purchases. No one card can satisfy all needs. If someone is a frequent traveler they might go for a travel card, contrary to the needs of a shopaholic.
Stop listening to people trying to convince you to settle with one card. As long as your credit cards are managed wisely, their benefits would always outweigh the cost they hold. Your credit score will not be affected negatively or see a downward slope anytime soon.
Tip- Try not to be impulsive in your purchases and keep a constant check on your credit statements.
You might be setting yourself up to avail a new card. But here’s the stress, what would you do with your old card? Maybe you come to a conclusion to get rid of it, as it may affect your credit score. But here’s the myth-buster, your old credit card won’t affect your credit score. In fact, the older it is, more the value it adds to your credit history.
A financial institution or any other lender will always look into your credit history before approving any credit. If you have an old credit card, which is well-managed, it will show a good reflection of your creditworthiness.
Myth- Paying a minimum balance is sufficient
Minimum due is the amount that you need to pay to avoid any late payment charges. It’s a fraction amount of total due and varies from bank to bank. Only paying the minimum amount due is the worst financial mistake one can make.
In short term, it’s nothing different than a folk tale, it will be seen like that your burden has been lifted and you’re relieved. But the trouble will start when those remaining unpaid will come bouncing back to be paid. If you constantly have a habit of paying only minimum dues then your debt would rack up in a huge pile, leaving no-way-out for you. And your credit score will see a new low.
Avoid people asking you to only pay the minimum amount, and always pay your amount in full. Don’t leave balances out for future purposes as it can affect your credit score, therefore, hampering your ability to raise funds in future.
Both debit and credit cards are at the opposite side of the spectrum, they have distinguished properties. There is a common misconception that carrying a credit card, may increase my debt portfolio, so, I should go for a debit card instead! A debit card serves a different purpose than a credit card and cannot be used to improve your credit score.
Using a credit card means borrowing short-term funds from financial institutions, which are to be repaid back in full with interest. So, the repayment behavior is reflected in your credit score.
A credit card helps in increasing credit score while in a debit card, since, there is no involvement of debt, the money gets withdrawn directly from the cardholder’s account. The debit card only uses the amount of money that you currently have and no loan is involved in the process.
You might have probably heard people saying that accepting an increased credit limit is risky and might raise debt. Therefore, reducing the credit score. It’s just another popular credit card myth that you were told. If you’re a disciplined person with a good repayment history and habits then a credit limit increase can actually help you in long term. A higher credit limit is beneficial for your credit score.
If you maintain your credit utilization limit between 20-30% then your credit score would be higher. This is because credit utilization ratio is in proportion to the credit limit. High credit limit with low utilization rate will increase your credit score.
Consumers do not realize the power they hold with the card. With card issuers, they can get better deals and actually negotiate the annual fee. Some people might hesitate from asking, thinking this may give a wrong impression. If you’re going for a credit card then you have every right to negotiate the price with the bank without worrying about credit score or impression. Negotiating for a credit card annual fee won’t get reflected in your credit history. Hence, no impact on credit score.
Many borrowers think that ‘showing lenders that you’re using credit card’ and ‘having a balance’ in your credit card is same. But in reality, they are far from each other. While making regular payments and good financial habits increases your credit score, having an outstanding balance does the exact opposite. Keeping outstanding balances on your credit card can give the wrong impression to the financial institution. And it can affect your credit score.
If you’ve been blindsided by any of such myths before, then it is time to learn from your mistakes and resolve your fallacy through these facts. Understanding the basics can help you build a strong foundation. Knowing and understanding your credit card functionality can help you become more elegant in decision making. Hope these credit card myths and facts help you to avoid mistakes in future.
You can also check your credit report for free by clicking here before availing a credit card.